Apple Card, Rate Cuts, TFSAs
BoC Rate Cuts – Will They or Won’t They?
It looks like a rate cut from the Bank of Canada (BoC) is more likely than ever, with economists speculating it could happen as soon as September – a much earlier date than previously forecast.
Remember: when the BoC cuts the interest rate, it causes banks to lower their prime interest rate, which incentivizes consumers and businesses to take out loans and spend money, stimulating the economy.
There are two primary reasons the BoC is favouring a move to slash rates; 1) Canada’s underperforming economy has continued to lag through the summer months, and 2) heightened trade tensions between the US and China. Combined with the looming possibility of a global recession (remember the inverted yield curve?) has led experts to speculate that a cut is going to happen sooner rather than later.
Last Friday, Scotiabank tweaked their rate outlook – they now predict that a cut will occur anywhere between 4th September and 30th October. AKA, very fast-approaching.
Some good news? Canada’s inflation rate remained surprisingly steady at 2% – a result of lower service costs (mainly from the Telecoms sector) which were offset by rising prices of durable goods. Despite steady inflation being a reason the BoC may hold off on cutting rates, it’s clear that the experts are still more apprehensive than optimistic.
“Risks to the Canadian economy are on the rise,” said Jean-François Perrault, Scotiabank’s chief economist. Citing the US and China’s trade spat, Perrault wen on to state that, “dependent as it is on international trade, Canada cannot be immune to the rising tide of protectionism.”
September isn’t far off, so be sure to watch this space for any and all BoC updates as we head in to Autumn.
Apple Launches New Credit Card
Earlier this month, Apple released the long-awaited Apple Card in partnership with mega-bank Goldman Sachs for US customers. The promise? According to Apple, “There’s never been a card this smart”.
Basically, the card runs through Apple Pay, which is the contactless (tap) payment method built into the iPhone’s Apple Wallet App. You can also use your Apple Watch, iPad, or Mac to pay, and a backup physical card comes in the mail. Signing up takes about a minute, and approval or rejection is instantaneous. What makes it unique is the fact that the card doesn’t have a number – it generates a new digital number with every new transaction – a major innovation for an increasingly privacy-aware consumer base.
Another incentive is the generous cashback feature – Uber and Apple will give users 3% cashback when you purchase their products or order an Uber. Robinhood Snacks, a financial news outlet in the US, believes that more companies will hop on board and join in on the 3% deal because of the exclusivity it offers with iPhone users – “if you get 3% off every Uber ride, are you really gonna take Lyft?”
Apple’s partnership with Goldman Sachs, and their move into digital consumer banking signifies Apple’s ambitions to be ever-present in millennial and Gen Z’s day-to-day life. Whether the Apple Card meets those big expectations remains to be seen… in the meantime, Canadian consumers will have to wait.
The TFSA Turns Ten
In 2009, the tax-free savings account (TFSA) was introduced to allow Canadians to save without getting taxed on the interest that they earn. Kind of like a Registered Retirement Savings Plan (RRSP), but a lot more flexible.
(For those that need a refresher on the TFSA: check this video out)
Ten years later, 57% of Canadians have TFSAs – and it’s becoming a preferred method of saving for Canadians. In fact, 23% of respondents in a recent Ipsos poll said that they would choose to use a TSFA for savings over an RRSP.
However, more than 40% of Canadians are using their TSFA as regular savings account; collecting low interest on cash deposits rather than investing for higher returns. According to the poll, 43% of respondents don’t think that TFSAs are good for growing their investments.
Stuart Gray, director of RBC’s Financial Planning Centre of Expertise, talked to the Financial Post about the misconceptions around the TFSA: “You can actually hold a whole variety of savings vehicles, pretty much what you can hold in your RRSP. From cash in savings to GICs [guaranteed investment certificate], mutual funds, individual stocks and bonds, and exchange traded funds.”
TFSAs present a big opportunity for Canadians to do more with their savings. “The magic happens when you invest the money within your TFSA and gain the benefit of compounding, which helps your earnings generate even more earnings,” Gray says. “The true advantage of contributing money to your TFSA is to help you reach your goals, not just to have a short-term savings account.”
Moral of the story: Make that money move! Check out our TFSA 101 to learn how to make the most of your tax-free savings account.